Australia pays the price for relying on China

Throughout Australia’s industrial heartland, factories are closing. About an eight-minute car ride from the center of Melbourne, a General Motors plant that in 1948 produced the first automobile wholly made in the country is scheduled to shut for good in 2017, victim of a rising Australian dollar that caused labor costs to nearly double from 2001 to 2011. Toyota and Ford factories are set to close within two years, leaving Australia without any domestic auto production. Down the road from the GM plant is a facility operated by Boeing. In 2010 it sold the plant’s equipment for making metal aircraft parts to Mahindra & Mahindra, an Indian company that’s shipping the machinery to Bengaluru. Last year, Alcoa closed a nearby aluminum smelter.

Until recently the sad decline of heavy industry had little impact on the country’s highflying economy. Australia’s factories were closing, but its mines were booming. Chinese demand for Australian iron ore and other resources kept the economy humming. The country hadn’t suffered through a recession since the early 1990s. The boom is over as the Chinese economy slows, and the woes of the manufacturing sector are complicating the job of new Prime Minister Malcolm Turnbull.

The Liberal Party chose the former Goldman Sachs banker to be their new leader, ousting Prime Minister Tony Abbott amid concerns that Australia’s long run of economic growth was in danger. Gross domestic product in the second quarter expanded just 0.2 per cent over the first quarter, worse than the 0.4 per cent expected by economists. The unemployment rate is at 6.2 per cent, holding near a 13-year high.

Turnbull, who was communications minister under Abbott, is promising action. “My government has a major focus on tax reform,” he told reporters. That will mean less reliance on income taxes and more on consumer levies For all his talk about the transformational power of the Internet, the Australia that Turnbull leads still depends on the old-fashioned business of digging things out of the ground and shipping them overseas.(Sydney Morning Herald)